Wednesday, August 15, 2007

Yesterday's Wall Street Journal had an article titled "Hot Online Marketing Niche Cools Fast" about the Valueclick earnings miss. Aside from proving my point about the NY Post being the only source of business news (their vastly similar article was published more than two weeks ago), the article tars everyone in the industry with the "incentive marketing" brush. Then it says:

...marketers [are] questioning the effectiveness of getting names through incentive offers--realizing these consumers want the prize and often have little interest in the marketer's product...

Do you think that marketers ever thought these people wanted their products? Of course not. They either:

did not know how the leads were being generated;

were paying almost nothing for the leads, so on a cost-per-sale basis the leads were still cheap; or,

were paying on a cost-per-sale basis.

The problem isn't lead-gen, the problem is discriminating between good and bad leads. Quality pay-per-action marketing sells products more cheaply and at lower marketing dollar risk than pay-per-click, online display advertising and--even in this day and age of excess inventory--newspaper ads. The solution is more tracking of ROI by lead source.

If you could track your ROI and back into a cost-per-sale, then this whole brou-ha-ha becomes an opportunity. You could arbitrage the low-and-going-lower price of incentivized leads (and affiliate leads, which are cheap for a different, but related, reason) by buying more of them for less. For some products you don't care so much if you buy a lead for $20 and convert to a sale at a 5% rate or buy a lead for $2 and convert at a 0.5% rate (as long as the sale process itself isn't a cost: if you have to pick up the phone and call every lead, then that has to be factored in.)

Alternatively, and in the spirit of Monday's heuristic: buy low-cost leads, go one step down the process (by, for instance, calling the lead, having the lead fill out an application or otherwise verifying intent) and then sell the resulting better-quality leads. If you are relatively good at discriminating between just-bad and really-horrible batches of leads and can figure out how to weed the few good from the mass of bad leads cheaply, you can reap the arbitrage profits without a lot of fuss. Unlike most businesses, this is just a math problem.